OECD-ECLAC-PSE EU-LAC Forum

1. GLOBAL SHOCKS
AND MACRO
POLICIES
Christian Kastrop
Director of Policy Studies
Economics Department

2. Economic Outlook - Growth in
advanced economies is rebounding…
Real GDP growth
Per cent
10
8
6
4
2
0
10
8
6
4
2
0
OECD
BRIICS
2010 2011 2012 2013 2014 2015
Source: OECD May 2014 Economic Outlook database.

3. … driving a strengthening of global
growth
Real GDP growth
Per cent
2011 2012 2013 2014 2015
World1 3.7 3.0 2.8 3.4 3.9
OECD1 2.0 1.5 1.3 2.2 2.8
BRIICS1,2 7.3 5.7 5.4 5.3 5.7
United States 1.8 2.8 1.9 2.6 3.5
Euro area 1.6 -0.6 -0.4 1.2 1.7
Japan -0.5 1.4 1.5 1.2 1.2
China 9.3 7.7 7.7 7.4 7.3
Brazil 2.7 1.0 2.3 1.8 2.2
Mexico 4.7 3.7 1.3 3.4 4.1
1. Moving nominal GDP weights, using purchasing power parities.
2. Brazil, Russia, India, Indonesia, China and South Africa.
Source: OECD May 2014 Economic Outlook database.

4. Some of the stalled cylinders of growth are
starting to fire again
Fixed investment
Volume index, 2007 = 100
Trade in goods and services
Volume, year-on-year percentage change
2012 2013 2014 2015
120
110
100
90
80
70
120
110
100
90
80
70
United States Japan Euro area
Pre-crisis level
Average growth of world trade (1990-2007)
2012 2013 2014 2015
10
8
6
4
2
0
-2
10
8
6
4
2
0
-2
World
OECD
Source: OECD May 2014 Economic Outlook database.

5. Financial conditions are facilitating
faster growth in advanced economies
OECD Financial Conditions Index (FCI)1
6
5
4
3
2
1
0
United States
Japan
Euro area
1. The FCI takes into account interest and exchange
rates, credit condition surveys and household wealth. A
unit increase raises GDP by ½ to 1% after 4-6 quarters.
Bank lending rates for European companies1
3-month moving average, per cent
Germany Spain
France Greece
Italy Portugal
1. Rate on new loans to non-financial corporations (all
maturities), except for Greece (up to one year).
6
5
4
3
2
1
0
-1
-1
2011 2012 2013 2014
Easier conditions
Source: OECD May 2014 Economic Outlook database; OECD
calculations
Source: ECB MFI interest rates.
7
6
5
4
3
2
1
0
7
6
5
4
3
2
1
0
2011 2012 2013 2014

6. Drag from fiscal consolidation in the
United States and the euro area is lower
Consolidation effort
Change in underlying primary balance1 as per cent of potential GDP
2
1
0
-1
2
1
0
-1
United States
Euro area
Japan
2011 2012 2013 2014
1. Budget balance excluding interest payments and adjusted for the economic cycle.
Source: OECD May 2014 Economic Outlook database.

7. Unemployment is falling but from high
levels, and the euro area is lagging
Unemployment rate
Per cent
Number of unemployed persons
Millions
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
14
12
10
8
6
4
2
0
14
12
10
8
6
4
2
0
United States Euro area Japan
60
50
40
30
20
10
0
60
50
40
30
20
10
0
Other OECD USA Euro area
17 million
11 million
15 million
7 million
12 million
19 million
2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: OECD May 2014 Economic Outlook database.

8. NEAR-TERM
POLICY
CHALLENGES

9. Falling inflation in the euro area points to
increased deflation risks
Euro area headline inflation1
Per cent
3
2
1
3
2
1
1. Year-on-year change of harmonised index of consumer
prices.
Inflation expectations in the euro area
From inflation swaps; 10-day moving average, in per cent
0
0
2011 2012 2013 2014 2015
2011 2012 2013 2014
3
2
1
0
3
2
1
0
Between 1 and 2 years
Between 5 and 10 years
Source: OECD May 2014 Economic Outlook database. Source: Datastream; OECD calculations.

10. 0
-5
-10
-15
-20
-25
-30
-35
Exit from US QE has implications for EMEs
The financial turmoil in EMEs
% change in equity prices
Early 2014 Mid-2013
400
350
300
Percentage change from peak to through between 2013Q2 and 2013Q3 for
the mid-2013 period, and between December 2013 and end-March 2014
for the early 2014 period. Equity prices are expressed in domestic
currency.
Brazil’s reserve position
USD bn
250
Reserves International Debt
2011 2012 2013

11. Credit has grown quickly in some EMEs,
increasing financial vulnerabilities
Credit growth to the private sector1
Per cent
25
20
15
10
5
25
20
15
10
5
1. Average annual growth between end-December 2006
and end-September 2013.
Selected shadow banking products in China
Per cent of GDP
0
0
Average credit growth for US, euro area,
Source: BIS; OECD calculations.
40
30
20
10
Wealth management products Trust assets
Source: CBRC; Kwan (2014); National Bureau of Statistics of
China; and China Trustee Association.
40
30
20
10
0
0
2008 2009 2010 2011 2012 2013

12. Policy requirements
Monetary policy
• US must gradually withdraw stimulus
• Euro area should ease policy
• EMEs face a delicate balancing act
Fiscal policy
• US/Euro have stabilised debt, but a long way to go bring
down debt levels
• Some EMEs are in good shape, others are more vulnerable
Financial system repair
• Euro Area Asset Quality Review/Stress Tests are critical

13. LONG-TERM
POLICY
CHALLENGES

14. Reforms are needed to address the scars
from the crisis and boost growth
Estimated effects of the crisis on potential
per capita output of OECD countries
Percentage deviation from pre-crisis scenario1
OECD structural unemployment
Per cent of labour force
2007 2009 2011 2013 2015
7.5
7.0
6.5
6.0
7.5
7.0
6.5
6.0
2007 2009 2011 2013 2015 2017
2
0
-2
-4
-6
-8
-10
-12
2
0
-2
-4
-6
-8
-10
-12
Upper/lower quartile
OECD aggregate
1. In the counter-factual baseline, productivity growth continues at its
2000-07 rate and structural unemployment and participation rates
remain at their 2007 levels.
Source: OECD May 2014 Economic Outlook database; OECD calculations.

15. Faster pace of structural reform needed in
BRIICS, given the slowdown in potential
Potential output growth
Per cent
.
12
10
8
6
4
2
0
12
10
8
6
4
2
0
2007 2014
China India Russia Indonesia South Africa Brazil
Source: OECD May 2014 Economic Outlook database.

16. 3.5
3
2.5
2
1.5
1
0.5
0
Product market regulation (PMR)
Scale from 0 to 6 (most restrictive)
Source: OECD PMR database

17. 17
World economy activity is shifting to
Asia
United States,
23%
Japan, 7%
Euro area,
India,
7%
China, 17%
Other OECD, 17%
18%
Other non-
OECD, 12%
Percentage of global GDP, in 2005 PPPs
United States,
18%
Japan, 4%
Euro area,
12%
Other OECD,
15%
India, 11%
Other
non-
OECD,
12%
China, 28%
India, 18%
1. Global GDP is taken as sum of GDP for 34 OECD and 8 non-OECD G20 countries.
Source: Long-term Growth Scenarios, OECD Economics Department Working Paper No. 1000.
United States,
16% Japan, 3%
Euro area, 9%
Other OECD,
14%
Other non-
OECD, 12%
China, 28%
2011
2030
2060